Kenya's private sector activity contracted in August but at a slower pace than in July, as businesses slowly picked from recent protests disruption on the economy.
The Stanbic Bank Kenya headline Purchasing Managers' Index increased to 49.4 in August, from a 12-month low of 46.8 in July.
Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.
Whilst still below the 50.0 no-change mark, the index signalled a much softer decline in operating conditions midway through the third quarter, with the PMI pointing to a near recovery in business conditions, after July data signalled that business activity was heavily dented by weak sales and protest-led disruption.
Output, new business and purchasing fell at softer rates, while employment continued to rise and inventories saw a renewed uptick.
Businesses also showed greater confidence in the year-ahead outlook, as they hoped that new marketing activities and product offerings would support growth. Positivity was at its highest level in two-and-a-half years. However, firms were still beset by a marked rise in overall cost burdens.
New orders received by Kenyan businesses fell for the fourth month running in August.
However, the rate of decline softened markedly and was the slowest recorded in this period. While some firms continued to highlight weak purchasing power at clients, others saw a pick-up in new business and a general recovery in economic conditions from the last few months of protest-related disruption, according to Stanbic.
Consequently, output levels fell at a more modest pace during the latest survey period.
There was also a softer reduction in the purchasing of inputs, as some companies were encouraged by the improving demand outlook to restart procurement activity.
This allowed inventories to rise slightly after a drop in July. Employment levels also increased. Although job creation remained mild, the uplift was the fastest seen in 15 months.
Higher workforce capacity and inventory building allowed firms to reduce their backlogs for the third month running. Vendor performance improved notably in August with greater competition across the supply chain reportedly leading to the fastest reduction in delivery times since October 2021.
"The Stanbic Kenya PMI improved in August, recovering from the solid decline in July, although business conditions were still subdued. Output declined more than new orders due to weak disposable incomes and challenging economic conditions. Nevertheless, firms, especially in manufacturing, are more upbeat about output over the next 12 months, which should imply healthier business activity in the coming months,” said Christopher Legilisho, Economist at Standard Bank.
Kenyan companies reported a solid increase in input costs in August, although the pace of inflation slowed down for the first time in five months. While wage pressures intensified, the increase in purchase prices was less marked than in July.
A number of firms commented on higher costs linked to taxes on items such as fuel. Nevertheless, as part of efforts to stimulate a recovery in demand, output charges rose only marginally and to the least extent in 12 months.
Businesses showed a greater level of optimism towards future output for the third consecutive month in August, which took overall sentiment to its highest since February 2023.
With demand stabilising, companies reportedly placed greater confidence in their ability to secure higher sales through increased marketing and diversification efforts.
"Output prices were increased only modestly. However, there was a notable rise in wage costs due to salary adjustments to accommodate cost-of-living pressures, implying that inflation is rising against the backdrop of subdued aggregate demand,” Legilisho said.
